Oil prices dipped to near $48 a barrel Wednesday as investors weighed tensions in the Middle East and more bad US economic news suggesting crude demand is slowing.
By mid-afternoon in Europe, light, sweet crude for February delivery was down 43 cents to $48.15 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session it fell as low as $47.61 before rebounding.
On Tuesday, the contract slipped 23 cents to settle at $48.58.
In London, February Brent crude rose 26 cents to $50.79 a barrel on the ICE Futures exchange.
Oil prices have risen 43 percent since reaching a five-year low of $33.87 a barrel on Dec. 19 on investor concern that the conflict between Israel and Hamas in Gaza could spread to the rest of oil-rich Middle East and affect supplies.
The 11-day Israeli air and ground offensive, which has killed about 600 Palestinians, has probably added about $10 to the price of oil, said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne.
The recent gains have been due to a one-off issue in the Middle East, Pervan said. Once that calms down, the market could be in for a correction back toward $40.
The escalating gas dispute between Russia and Ukraine has also added to market uncertainty. Russia has shut off all its gas supplies to Europe through Ukraine. About 80 percent of its deliveries to Europe go through Ukraine.
As a result, alternative energy sources such as gas oil increased strongly, with ICE Gas Oil posting a gain of around 20 percent since Monday, said JBC Energy in Vienna, Austria.
A report from Sucden Financial Research in London said the dispute was especially supportive as Europe is experiencing unseasonably cold temperatures.
Equity investors have so far this year brushed off signs of a severe global economic slowdown, pinning their hopes on a second half recovery spurred by massive government spending and lower interest rates. The Dow Jones industrial average is up 19 percent since Nov. 20. Japan s Nikkei index has risen seven straight days.
But dismal US economic news continued Tuesday as the National Association of Realtors said pending home sales fell to the lowest level on record in November, and the Commerce Department reported a drop in factory orders in November that was nearly twice as steep as economists had expected.
Oil traders often look to stock markets as a barometer of investor sentiment about the economy.
Consistent negative economic data over the coming weeks from the US and elsewhere will likely be enough to water down this positive mood in the market right now, said Pervan, who expects oil to average about $40 a barrel this year.
Investors are also anticipating the weekly oil inventories report to be released Wednesday by the US Energy Department s Energy Information Administration for signs of slowing US crude demand.
The report is expected to show that oil stocks rose 1.5 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Platts survey also projects that gasoline inventories rose 1.6 million barrels and distillates jumped 700,000 barrels last week.
In other Nymex trading, gasoline futures fell 1.02 cents to $1.1790 a gallon. Heating oil were down 0.41 cent to $1.6222 a gallon while natural gas for February delivery lost 1.8 cents to $5.965 per 1,000 cubic feet. -Associated Press writer Alex Kennedy in Singapore contributed to this report
